Singapore’s GDP (Gross Domestic Product) rose to 3.6% in 2017, up from 2.4 % in 2016. Because of the encouraging economic outlook for the past financial years, the Singapore government is eager to capitalize on the momentum and continue with its forecasted economic progress. This notwithstanding, the Finance Ministry, remains ever cautious in devising its strategy for the Lion City’s revenue generation and expenditures for the years to come, moreso following Singapore’s reported slow growth in the last quarter of 2017.
In February 19, Finance Minister Heng Swee Keat presented Singapore’s national budget for 2018. The fiscal budget for this year is hailed as more inclusive and expansionary, it having been designed by the Government with the objective of fostering innovative and vibrant economic growth across all sectors, mostly beneficial for every Singaporean household. The promise behind the National Budget is clear: create a caring and cohesive society and prepare Singapore as a nation built for a fiscally sustainable and secure future.
For Singapore’s national budget in 2018, the total spending by the ministries is set at S$80 billion, with a projected small budget deficit of S$0.6 billion, or 0.1 per cent of the GDP. Governmental expenditures are likely to increase in the core areas of trade, transport, health care and domestic security. The transport budget, in particular, is expected to increase by 50% (about S$13.7 billion) while home affairs expenditures will grow from S$5.8 billion to S$6.5 billion.
Finance Minister Heng Swee Keat stressed how current factors affected the drafting of the fiscal budget, among these the desire to retain Singapore’s position as Asia’s investment hub, create opportunities for domestic firms, and cater to the aging population of Singapore which could potentially lower the nation’s vibrant labor force.
Newest Policies Under Singapore’s National Budget for 2018
Here are some of the most essential aspects of the National Budget for 2018, which can impact Singapore’s corporate landscapes:
Adjusted Start-Up Tax Exemption (SUTE) scheme
The Start-up Exemption Tax (SUTE) scheme introduced in 2005 to support entrepreneurship will be adjusted, that is, it will now be restricted to the first S$200,000 of a start-up’s chargeable income instead of the current cap set at S$300,000. The exemption on the first S$100,000 taxable income will be lowered, from 100% to 75%. The next S$100,000 chargeable income will now enjoy an exemption of up to 50%.
Adjusted Partial Tax Exemption Scheme
As to the adjustments for partial tax exemption scheme, the qualifying startup enjoys the same exemption of 75% for the first S$ $10,000, but the second tier of taxation will be adjusted, which means that the next S$190,000 taxable income will be subjected to 50% tax exemption, instead of the prior base of S$290,000.
Notwithstanding the new tax exemption adjustments which are set to take effect on or after year of assessment (YA) 2020 for all companies, PwC Singapore’s private clients tax leader Lennon Le, believes that the changes will have little or no effect on start ups in Singapore as many start-ups remain unprofitable for their first few years of business operations.
Enhanced Tax Deductions
To encourage companies and enterprises (especially the SMEs) to focus on an innovative approach to business set up, the Government has incentivized R & D activities and IP registration. In the fiscal budget for 2018, increased tax deduction from 150% to 250% awaits qualifying research and development projects in Singapore.
In addition, tax deductions on the first S$100,000 of qualified IP registration costs spent for every year of assessment will increase from 100% to 200% to encourage businesses to protect and register their intellectual property rights. Similarly, companies with qualifying IP in-licensing costs may claim increased tax deductions from 100% to 200% on the first S$100,000 expenses. All the abovementioned tax deductions are to take effect from year of assessment (YA) 2019 to 2025.
Enhanced Double tax deduction for internationalization (DTDi)
At present, companies under the scheme can avail of tax deduction of up to 200% on qualified and government approved market expansion and investment development expenses. In the recent fiscal budget, to foster internationalisation amongst domestic firms, the Government has increased specified expenditure cap for claims for double taxation deduction from S$100,000 to S$150,000, notwithstanding lack of prior approval from the Singapore Tourism Board or International Enterprise Singapore, so long as the expenses are qualified and incurred from year of assessment (YA) 2019 to 31 Mar 2020.
Extension Wage Credit Scheme
Singapore’s Wage Credit Scheme (WCS) was introduced in 2013 as a support package to help business employers cope with wage increases. In the national budget of 2015, the government extended the scheme application for two years, which is 2016 and 2017, with the government’s level of co-funding set at 20% for qualifying wage increases per year.
For Singapore’s national budget of 2018, the Wage Credit Scheme (WCS) has again been extended for three years, from 2018 to 2020. This is because bloated wage costs remain a common business concern in Singapore. The extension of the WCS is critical in helping businesses alleviate the costs of hiring local talent in Singapore.
The level of co-funding is expected to decrease per year with reduced governmental subsidies. This means that there will 20% co-funding from the government in 2018, 15% co-funding in 2019 and 10% co-funding in 2020. The scheme shall benefit only those qualified employees in Singapore earning minimum gross wages per month of up to S$4,000 and having monthly pay rise minimum of S$50. The grant of subsidies for the Wage Credit Scheme is expected to cost the Government approximately S$1.8 billion for three years.
Higher Corporate Income Tax Rebate
Among the near-term relief measures included in Singapore’s 2018 national budget is the revised corporate tax rebate. In essence, a corporate tax rebate enables corporate tax payers, especially start-ups, to manage immediate and burdensome business costs. The increase and extension of the corporate tax rebate is primarily given as support to corporate entities seeking to ease business costs and enhance their support restructuring.
The Corporate Income Tax (CIT) rebate for year of assessment (YA) 2018 has increased from 40% from the previous 20%, with the usual cap of S$10,000 likewise expanded to a cap of S$15,000. The CIT rebate will likewise be extended until 2019, but only slightly lower, with a tax rebate of 20% of tax payable and capped at S$10,000.
Enterprise Development Grant
With the core objective of helping local enterprises scale up their operations, build better capabilities and internationalise, the Singaporean government harmonised two existing customised enterprise grants – SPRING Singapore’s Capability Development Grant (CDG) and IE Singapore’s Global Company Partnership Grant (GCP)— to form a more comprehensive and streamlined financial grant for SMEs, which is called Enterprise Development Grant (EDG) to be administered by the newly formed Enterprise Board. The Enterprise Development Grant offers the same level of support and requires same application eligibility as its predecessors, to avoid further confusion among applicants. The EDG can be used to seek funding up to 70% of the qualified costs for financial year 2018 to 2019.
The PACT scheme is designed to provide better support to SMEs and encourage collaboration and partnerships between enterprises of all sizes. Under the previous PACT scheme, it was required that partnerships shall be between small and medium enterprises and large firms only. With the revised PACT scheme, the tie ups can be amongst the SMEs themselves.
The Government has allotted more than S$100 million for the next three years to implement the Integrated Pact, which brings together for existing funding schemes namely: Singapore’s Global Company Partnership Grant, Partnerships for Capability Transformation (Pact) scheme and Spring’s Collaborative Industry Projects.
The National Budget for 2018 is Innovation-Focused and No Longer Overly Generous
Without a doubt, the National Budget for 2018 strengthens the foundation of Singapore as an economic powerhouse, not only in Asia but on a global scale as well. Singapore has always had the vision to sustain its economic growth and is able to tread the path of progress through dynamic and pragmatic policies that care for its constituency in general.
While this year’s national budget has visibly shifted from extremely generous and broad-based subsidy grants to a more innovation-centric approach, the primary goal of sustaining the economy, attracting more investments and achieving a better future for all of Singapore, remains the same.
Should you want to learn more about how the new fiscal budget can impact your business set up, contact Corporate Services today.